March 20, 2020 Letter to Clients

Together, we're facing a truly unprecedented situation as our country and the world react to the coronavirus (COVID-19) and its impact on our lives and the economy. Our hearts go out to the families and communities who have been affected by the virus, either directly or indirectly.

With the ongoing media coverage regarding the spread of COVID-19, I am continuing my efforts to keep you all apprised of the actions our office is taking as well as keep you updated on market activity. The safety and wellness of both our clients, their family and our staff are of the utmost importance to us and as a result, we are making some changes to our business practice to reduce everyone’s social exposure. Our office will be closed to walk-in traffic until further notice to reduce the virus’ overall exposure and for the health and safety of everyone.  We continue to be available by email and phone to answer any questions during this time.

I expect further direction on closures and potentially quarantine mandates to come from either local, state and/or federal officials as cases continue to rise across the country, and should we need to work remotely we are already setup with the secure technological capability to do so. Should you phone our office during this time, kindly leave a detailed voicemail and you can expect to receive a response as promptly as possible.

In the interim, I appreciate everyone’s continued efforts to stifle the impact of the virus within our communities. I encourage everyone to follow recommendations from the Center for Disease Control and Prevention (CDC) on prevention and treatment, as well as guidance on preparing your households for the COVID-19 outbreak.

Regarding the Markets

The fear-induced global sell-off this year triggered by COVID-19 ended the longest bull market in U.S. history. Much of the news has focused on volatility in the equity markets, however fixed-income and commodities markets have been just as volatile in 2020.

Bad News:

  • As the number of tests available increase, I expect the number of U.S. cases to surge
  • Markets will likely get worse before they get better and in my professional opinion we are in a recession
  • Earnings are projected to take a substantial hit in the first, second and potentially third quarters of 2020
  • Markets are attempting to price-in the expected impact of bad news and additional, unexpected bad news could drive markets lower from here
  • The virus is hitting both the supply side and the demand side of the economy, but the full global economic impact is uncertain at this time
  • The health of the U.S. economy is dependent upon the consumer, and a combination of “social distancing” and layoffs will put consumer spending at risk near-term
  • Travel and leisure industries are coming to a full stop just as the energy industry is battling decreased demand with an increase in supply

Good News:

  • The degree to which the global and U.S. economy slow will be dependent upon containment of the virus and responsive actions of the governments and central banks around the world
  • The U.S. economic strength heading into this event should be helpful when we enter the recovery phase
  • Stock markets are forward looking and once containment efforts are successful, we are likely to see a V-type recovery with the market rebounding quickly seeing large point swings on the upside
  • Other countries including South Korea and China have been aggressive in testing and containment procedures and appear to be on the other side of the outbreak
  • China — the original epicenter of the crisis — is reporting very few new cases
  • There is a coordinated central bank response/stimulus from the Federal Reserve (Fed) including two surprise rate cuts and a plan to purchase $700 billion in Treasuries and mortgage-backed securities as well as enacting other measures to ensure short-term funding markets remain stable
  • The President signed Families First Coronavirus Response Act into law on March 18th, the second bill passed this month, ensuring free COVID-19 testing, bolstering unemployment insurance, increasing spending on health insurance for the poor and adding $1 billion in food aid
  • The White House is also working with Congress on a $1 trillion economic stimulus package which could include a combined $500 billion in checks to Americans to address the economic impact of the coronavirus

What We’re Doing for Our Clients:

It is clear that COVID-19 is not going to be a quick, transient event like many had hoped. Broadly speaking, I continue to evaluate current portfolio positioning for our clients and we have already made overall portfolio shifts as follows: 

  • Overall de-risking portfolios by reducing exposure to international markets in general
  • Reallocating fixed income into higher quality markets and increasing positions in U.S. Treasuries due to interest rate environment
  • Reducing exposure to small/mid-cap companies potentially impacted by demand destruction from the virus
  • Reducing exposure to cyclical sectors that are more dependent on the economy
  • Identifying new opportunities that have become more attractively valued
  • Taking more defensive posture by increasing exposure to large-cap companies with strong balance sheets as well as consumer stocks that pay attractive dividends to help reduce volatility

I am taking a cautious and deliberate approach to the management of our portfolios given the uncertainties in the markets, and I continue to monitor the evolving situation and its impact. Trust that I am working closely with industry experts including portfolio managers and strategists both in the equity and fixed income/bond markets to continue to diversify portfolios to help alleviate downward market movements as well as capture the upside potential when the market rebounds.

What Should You Do?

I’ve heard the question “should I get out of the market?” But this comes with a second, harder question – “when should I get back into the market?” My response to this is that the market responds to numerous forces, making timing the market complicated and risky.

As an example, the chart below displays the impact of withdrawing from the markets during the 2008 Financial Crisis and waiting to re-enter until the market reached its prior high. This meant that the investor missed the first part of the rebound, which saw some large returns as the market recovered.

An investor who withdrew from the markets saw a significant difference in their portfolio value from sitting in cash for two years waiting for the market to recover.

Uncertain markets such as these are frustrating and anxiety inducing, but they also serve as an important reminder. I fully recognize that the market we are experiencing is unprecedented and it is difficult to discern the full impact of the virus; however, allowing emotions to drive decisions and reacting to where we think the market is headed may compromise long-term returns. I have seen many volatile periods throughout my career, which has taught me that none of us can predict what the market will do in the short term. As an investor myself, I too weather the same market volatility and experience the same ups and downs in the market, but my experience has taught me that we must contain our emotions in both times of market rallies and market declines.

We’re Still Here and Thank You

The beginning of 2020 has been quite a ride so far, and I’m still here for you during this difficult time. Even if my office is closed for a while, our team will still be working from our homes and just as available to you as always.

Unfortunately, I have been unable to speak with all of you directly as my focus has been fixed on positioning all of your accounts to the best of my ability to weather this volatile period. Part of my role is to help you navigate through uncertain periods, even during “social distancing.” While many of us are collectively pausing face-to-face contact, there are plenty of other ways of staying connected. We continue to be available by phone and email.

Many of us have the privilege to self-quarantine and isolate to try and stay healthy. I recognize that our medical professionals do not have that privilege. You all have been on the front lines of this and I wanted to take a moment to recognize you and send my appreciation for your continued efforts in keeping our communities safe.

We’re in this together, and we’ll come out of it together. Meanwhile, I’m wishing you peace and good health.


Steve LePage